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Wednesday, 23 October 2013

Keeping It Real

I have been watching two trendlines with particular interest over the last few days, and have stated repeatedly here that a break up on either should confirm the bull case for a strong run up on equities into next year. Both have broken up in the last two days, and I am leaning very strongly here towards this bull scenario. I wrote up part of that scenario back on 30th June this year, when I gave a target in the 1965 area for the rising wedge from the 2011 low that had recently broken up and you can see that post here.

After the 1646 SPX low I warned that if the rising wedge from the 1560 low in June should also break up, then that 1965 target would be joined by a target in the 1925 area from that second rising wedge, and that rising wedge from the 1560 low broke up with some confidence yesterday. I posted this SPX daily chart yesterday showing the close back on the daily upper bollinger band and SPX closed at the band again yesterday. Historically this strongly suggests a retracement or (less likely) consolidation short term, but neither would negate this break up from this rising wedge. SPX daily chart:

The other trendline that I have been watching is the four hit resistance trendline from 2008 running through the highs in 2010, 2011 and May 2013. This is a strong and very precise trendline, as I have shown on the chart below using the thinnest possible line to join the points together, and it broke yesterday. That's only a small break as yet, and might just be a pinocchio through resistance if SPX stalls until the end of the month, but either way this break is a strong signal that this trendline is likely to break up soon, which I was already expecting from the overall pattern setup. SPX monthly chart:

Back in the short term I posted a rising wedge from the 1646 SPX low on twitter yesterday afternoon, and the overnight action on ES suggests strongly that SPX will gap down through wedge support at the open today. I would then expect either a retest of the highs (and broken wedge support) today or for an H&S to form, with the likely neckline in the 1740/1 area if that is the case. SPX 60min chart:

There were significant moves on other markets yesterday and first among those was USD, where the rising channel, having been tested on Friday, was then broken. The last ditch defense level for USD bulls is the double top trigger level at 78.60, and that will most likely be tested soon. USD daily chart:

I've been following the IHS on TLT in recent days and today I'll show the inverted view of that on TNX, where the H&S targeting the 21 to 21.25 area broke down hard yesterday. We should now see a solid rally on bonds over the next few weeks into that target. TNX daily chart:

I've been watching the precious metals complex for signs that a new bull market is underway and there was another promising bull signal yesterday with the break up on SLV over falling megaphone resistance. There is a sort of reversal pattern on SLV, nearest to a very ugly IHS most likely, but whatever it is I would be targeting the 30 area on a clear break over 24. SLV 60min chart:

On the CL daily chart I was showing the rising channel support target on WTIC yesterday in the 91.5 to 92 area. On CL that is boosted by an H&S target in the 91 area. I have shown on the chart below how almost every significant reversal on CL in 2013 has been signaled with daily RSI divergence from overbought/oversold and I would expect the next reversal to do the same. That doesn't look at all likely in the near future. CL daily chart:

I won't show the ES chart this morning but the first resistance level to watch today is the 50 hour MA at 1741.5. ES has been testing resistance there for the last five hours and that could hold. If so then the next big level below and a possible H&S neckline is at 1734/5 ES. If ES can break back over 1741.5 then we may well see a retest of the highs for what would most likely be the second high of a double-top. In terms of retracement targets the SPX daily middle BB is now at 1700, and the 38.2% and 50% fib retracements of the move up from the 1646 SPX low are at 1716 and 1703 SPX respectively. I'll be looking for a decent bull pattern to form on the way down, but regardless of that I think this will be a dip to buy for a strong move up that should last several months.

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